3 AI Infrastructure Stocks for Long-Term Upside

Brokerage firm UBS (UBS) recently developed a list of stocks poised to benefit from the burgeoning artificial intelligence (AI) trend. It predicts global AI sales will steamroll past the $400 billion mark within three years. Additionally, the firm advises its investors to wager on businesses across the AI value chain. AI infrastructure stocks, in particular, could prove lucrative, given that infrastructure spending is driven by GPU cloud and other emerging trends, which are forecast to grow to $195 billion in 2027 from $25.8 billion in 2022.

Moreover, UBS analyst Nadia Lovell states that only 5% of companies currently utilize generative AI, indicating a robust growth runway ahead. Considering that, here’s a closer look at three leading AI infrastructure stocks, all drawn from UBS Global Research’s list of top ideas.

#1. Nvent Electric Plc (NVT)

Based in London, nVent Electric (NVT) is a prominent name in the industrial space, offering electrical connection and protection solutions. It specializes in delivering global electrical connections and protection solutions through its key operating segments, which include AI enclosures, electrical solutions, and thermal management. NVT integrates various products under brands such as Caddy, Erico, and Raychem, serving customers in multiple sectors.

Valued at $12.7 billion by market cap, NVT stock has soared 61.7 % in the last year, and returned over 220% gain in the past five years. Following the stock’s run-up, NVT shares currently trade at 23.43 times forward earnings, suggesting investors are willing to pay a premium for future earnings growth. 

Additionally, investing in NVT stock comes with a dividend. It currently yields 0.99%, offering an annualized dividend of $0.76 per share.

The firm recently reported its Q1 earnings print, with sales coming in at $874.6 million, an 18% jump year-over-year. Impressively, the firm’s net profit jumped by 12.05% to $105.1 million. Moreover, nVent Electric reported earnings per share of 77 cents, beating analysts’ expectations by 4 cents.

Furthermore, the company boasts healthy cash flows. Free cash flow rose 41% in the most recent quarter to $74 million, and NVT ended the quarter with a cash balance of over $211 million. These robust cash flows are a testament to NVT’s efficient operations, positioning the firm for future growth.

Analysts are bullish about NVT stock’s prospects. The stock has a consensus “Moderate Buy” rating and a mean price target of $88, indicating a 13.8% upside potential. Among the 10 analysts covering the stock, 6 assign a “Strong Buy” rating, 1 has a “Moderate Buy,” and 3 maintain “Hold” ratings. 

#2. Equinix Inc (EQIX)

Based in California, Equinix Inc. (EQIX) is a digital infrastructure company providing data center and interconnection services. With more than 220 data centers globally, Equinix allows businesses to efficiently connect and manage their digital operations securely. Its services boast utility across multiple industries, facilitating seamless data exchange and cloud access. With AI technology booming, data center companies like Equinix are always in demand. The company’s market capitalization stands at $72.4 billion.

We saw Equinix stock take a dive late in the first quarter of this year, gapping lower on March 20 following short seller Hindenburg’s allegations of accounting manipulation. However, the REIT has built a decent head of steam of late, following a strong quarterly earnings print for Q1. 

Revenue increased by 6% on a year-over-year basis, while net income rose by 2%, reaching $231 million. Moreover, its adjusted EBITDA rose to $892 million, an 8% bump from the prior-year quarter. EPS of $2.43 missed estimates by 20 cents, though adjusted funds from operations (AFFO), a key metric for REITs, beat forecasts at $8.86.

Equinix’s forward guidance projects revenues of $8.69 to $8.79 billion for the current year, reflecting a 6% to 7% increase over the previous year. Also, it announced a quarterly cash dividend of $4.26 per share, payable to its investors next month.

Analysts have taken a bullish stance on Equinix stock, with a consensus rating of “Strong Buy.” Among 23 Wall Street analysts, 17 have assigned a “Strong Buy” rating, 1 has given a “Moderate Buy” rating, and 6 recommend a “Hold” rating. The stock is projected to have 19.8% upside potential, based on the average price target of $903.41.

#3. Vistra Energy Corp (VST)

Based in Texas, Vistra Corp. (VST) is a leading integrated power company that combines a diverse portfolio of electricity generation with innovative retail energy solutions. It operates across multiple states, providing energy to millions of customers nationwide.

With a market capitalization of $29.9 billion, Vistra’s shares have gained more than 237% over the past year. These outsized returns are the result of the company’s expansion projects and strategic acquisitions, as well as its addition to the S&P 500 Index ($SPX) in early May.

In March, the firm acquired Energy Harbor, adding four nuclear plants in Texas with a capacity to generate 4000 MW of electricity. The acquisition will significantly expand its energy portfolio, enhancing the firm’s ability to provide reliable power and add to its customer base. 

On May 8, Vistra reported its Q1 results, with revenue of $3.05 billion beating expectations by 4.95%, despite a decrease of 30% year-over-year. Adjusted EBITDA was $813 million, while net income from ongoing operations was $39 million.

In terms of its valuation, Vistra stock trades at a decent 23.59 times forward earnings and 1.81 times forward sales. Additionally, its annualized dividend of 87 cents per share has the stock yielding just over 1%. 

Vistra has locked in prices for its future electricity production to reduce risk and ensure a steady income. The company has secured prices for about 95% of its expected output for the rest of 2024, about 80% for 2025, and about 50% for 2026. This strategy and encouraging future price predictions support Vistra’s financial expectations for 2024 and beyond. 

Moreover, Vistra is poised for robust growth, indicated by its solid guidance for the year. Looking ahead, earnings are expected to rise to $4.55 per share by fiscal 2025, with revenue increasing to $18 billion.

Vistra stock has received a “Strong Buy” rating from 8 of the 9 analysts in coverage, along with 1 “Moderate Buy.” With a maximum price target of $133 and a mean target price of $110, the stock offers potential upside of up to 56.5% for prospective investors.

On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.